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Takeaway: Caution is advised for Twitter bulls.

Editor's note: This is a brief excerpt from a recently released Hedgeye report.

The Known:

Hedgeye Internet analyst Hesham Shaaban says “2Q14 was a monster quarter” and notes the company raised guidance by $100M, “a considerable raise relative to prior implied 2H14 guidance of $700M.” A massive driver for the quarter was ad content around the World Cup.

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The Unknown:

How much of TWTR’s 2Q14 strength was driven by the World Cup – a month-long global event without a comparable event in the prior-year period, or its public history. Also unclear is how much TWTR is relying on its recent acquisitions – ones already closed, plus three more announced for 3Q14 – to pump its increased guidance. Shaaban says the Street is not likely to pay up for an increase in revenues that comes inorganically – from a mix of acquisitions and one-off events.

The Unknown Unknown:

For the first time, TWTR growth in ad engagements lagged user activity, meaning users are fading Twitter ads at an increasing rate. Since TWTR gets paid when users actually engage with ads, this implies the company will have to push more ad volume, as ad engagement declines. In fact, Shaaban says TWTR’s growth has been driven more by surging ad load, and less by high volumes of user engagement. If TWTR can't get its users to engage with its ads at historical rates, it will need to introduce a disproportionately larger number of ads to continue to deliver results. This risks pushing the less loyal users away, especially since TWTR is largely dependent on mobile (smaller screen) users.

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What We Expect:

Shaaban expects a marked 2H14 deceleration in organic advertising revenue growth, though we could still see 2H14 revenues rise from its latest acquisitions. Shaaban doesn’t believe this is what the Street is expecting, or is willing to pay for. If TWTR's 3Q14 results reflect these expectations, Shaaban says it would cast serious doubt on the story.